JOHNSON KIDZ, INC. v. VERITEX COMMUNITY BANK, N.A.

No. 05-16-00110-CV.

JOHNSON KIDZ, INC., Appellant, v. VERITEX COMMUNITY BANK, N.A., Appellee.

Court of Appeals of Texas, Fifth District, Dallas.


Attorney(s) appearing for the Case

D. Woodward Glenn , Matthew Glenn , for Veritex Community Bank, N.A., Appellee.

Julia F. Pendery , for Johnson Kidz, Inc., Appellant.

Before Justices Lang, Fillmore, and Schenck.


MEMORANDUM OPINION

Opinion by Justice DAVID J. SCHENCK.

Appellant Johnson Kidz, Inc. ("Kidz"), the tenant of commercial property owned by appellee Veritex Community Bank, N.A. ("Veritex"), sued Veritex after the property became uninhabitable due to vandalism. Veritex answered asserting various affirmative defenses and conditionally counter sued Kidz for breach of contract and Kidz's owner, Nelson Johnson, for breach of a guaranty agreement, should there be a finding Veritex ratified a lease agreement (the "Lease") that was in effect when it acquired the property. Veritex sought traditional-summary judgment on its affirmative defenses and/or alternatively on its counterclaims should the court determine Veritex ratified the Lease, which Veritex denied it had. The trial court granted Veritex's motion without specifying the grounds on which the ruling was based. The order granting summary judgment awards no damages and states all relief not expressly granted is denied and indicates the order is a final judgment disposing of all parties and all claims including attorney's fee claims and is intended to completely dispose of the entire case.

We conclude genuine issues of material fact exist as to Kidz's claims of breach of contract, constructive eviction, and violations of the property code, and note that Veritex did not move for summary judgment on Kidz's gross negligence and willful misconduct claims. We conclude there are no genuine issues of material fact as to Kidz's common-law fraud, fraudulent inducement, and negligent misrepresentation claims. Accordingly, we reverse, in part, the trial court's judgment dismissing Kidz's breach of contract, constructive eviction, violations of the property code, gross negligence, and willful misconduct claims, and remand those claims for further proceedings. We affirm, in part, the trial court's judgment dismissing Kidz's common-law fraud, fraudulent inducement, and negligent misrepresentation claims.

It appears from the trial court's order granting summary judgment that the trial court did not grant Veritex its alternative, conditional request for relief on its counterclaims as no damages or attorney's fees were awarded. Thus, it appears the trial court found the summary judgment evidence established Veritex did not ratify the Lease and the condition upon which Veritex asserted its counterclaims was not triggered. Because we conclude a fact issue exists as to whether Veritex ratified the Lease, Veritex's counterclaims are remanded for further proceedings. Because all issues are settled in law, we issue this memorandum opinion. TEX. R. APP. P. 47.4.

BACKGROUND

On February 1, 2011, Kidz entered into a Commercial Lease Agreement (the "Lease") with Eoff Savannah Square, LLC ("Eoff"), as landlord, for commercial space in a multi-use office building located in Plano, Texas (the "Property"). Kidz operated a daycare center in that commercial space. The Lease term was from February 1, 2011, through March 31, 2017. Veritex succeeded Eoff as landlord through a foreclosure sale on May 1, 2012. On or about October 6, 2013, after operating hours, someone broke into the Property and vandalized both real and personal property, making the premises uninhabitable. Kidz reported the event to the police department and Veritex. The police suspected a former disgruntled employee of Kidz was the perpetrator. Veritex told Kidz that the Property would be repaired within 120 days, but the Property remained in a state of unusable disrepair thereafter. As a result, Kidz notified Veritex that it was terminating the Lease and demanded a refund of rental payments, the return of a security deposit, and payment for lost income in accordance with the governing Lease terms.

When Veritex refused to accept Kidz termination notice, Kidz sued Veritex asserting claims of breach of contract, constructive eviction, violation of various property code provisions, fraud, fraudulent inducement, negligent misrepresentation, gross negligence and willful misconduct. Veritex counter sued Kidz for breach of the Lease and sued Johnson for breach of a guaranty agreement and requested an offset for funds recovered by Kidz. Initially, Veritex filed both no-evidence and traditional motions for summary judgment. Veritex abandoned those motions and later filed a traditional motion for summary judgment claiming: (1) Kidz does not have a claim for breach of contract because Veritex did not ratify the Lease; (2) if Veritex ratified the Lease, Kidz's claims are barred by the Lease's indemnity and exemptions from liability provisions; (3) Kidz caused the damages it claims support its constructive eviction claim; (4) because Kidz owed rent, the property code provisions governing security deposits do not apply; (5) Kidz's fraud and negligence claims are centered on nothing more than speculative comments about what might occur in the future; (6) Kidz recovered its damages from its insurance carrier; and (7) if Veritex ratified the Lease, Kidz breached the Lease by giving notice of termination after the deadline specified in the Lease. Veritex requested that the court enter a take-nothing judgment against Kidz, and/or alternatively, should the court find Veritex ratified the Lease, which Veritex denied, that Veritex have and recover of and from Kidz and Johnson, jointly and severally, rental payments and attorney's fees.

The trial court granted Veritex's traditional motion for summary judgment without specifying the basis for its decision. The court's order granting summary judgment does not award Veritex damages or attorney's fees and includes recitals that "[a]ll relief not expressly granted is hereby denied" and "[t]his is a final judgment disposing of all parties and all claims including attorney's fee claims. It is the Court's intention to completely dispose of the entire case."1

STANDARD OF REVIEW

The standard of review in traditional-summary-judgment cases is well established. Gonzalez v. VATR Constr. LLC, 418 S.W.3d 777, 782 (Tex. App.-Dallas 2013, no pet.). The issue on appeal is whether the movant met its summary judgment burden by establishing that no genuine issue of material fact exists and that it is entitled to judgment as a matter of law. TEX. R. CIV. P. 166a(c). The movant bears the burden of proof and all doubts about the existence of a genuine issue of material fact are resolved against the movant. Nixon v. Mr. Prop. Mgmt. Co., 690 S.W.2d 546, 548-49 (Tex. 1985). All evidence and any reasonable inferences must be viewed in the light most favorable to the nonmovant. Id. Evidence favoring the movant's position will not be considered unless it is not controverted. Great Am. Reserve Ins. Co. v. San Antonio Plumbing Supply Co., 391 S.W.2d 41, 47 (Tex. 1965). When, as is the case here, a party moves for summary judgment on multiple grounds and the trial court's order granting summary judgment does not specify the ground or grounds on which it was based, a party who appeals that order must negate all possible grounds upon which the order could have been based. See Malooly Bros., Inc. v. Napier, 461 S.W.2d 119, 121 (Tex. 1970).

DISCUSSION

I. Summary Judgment on Affirmative Defenses

In its first issue, Kidz argues the trial court erred in granting Veritex summary judgment on its affirmative defenses. Summary judgment granted on the basis of an affirmative defense will be affirmed only if the record establishes that the movant conclusively proved all elements of its affirmative defense as a matter of law. City of Houston v. Clear Creek Basin Auth., 589 S.W.2d 671, 678 (Tex. 1979). If the summary judgment evidence on any element of the affirmative defense is controverted, the affirmative defense will not serve as the basis for a summary judgment. See Roark v. Stallworth Oil & Gas, Inc., 813 S.W.2d 492, 494 (Tex. 1991).

A. Ratification Defense

Veritex maintains Kidz has no breach of contract claim because Veritex did not ratify the Lease after becoming the owner of the Property. Veritex became the owner of the Property by foreclosure. Generally, a valid foreclosure of an owner's interest in property terminates any agreement through which the owner has leased the property to another. Kimzey Wash., LLC v. L.G. Auto Laundry, LP, 418 S.W.3d 291, 294 (Tex. App.-Dallas 2013, pet. dism'd). Therefore, post foreclosure, the Lease did not exist unless it was ratified by the parties. The elements of ratification are: (1) approval by act, word, or conduct; (2) with full knowledge of the facts of the earlier act; and (3) with the intention of giving validity to the earlier act. White v. Harrison, 390 S.W.3d 666, 672 (Tex. App.-Dallas 2012, no pet.).

As to the issue of ratification, Veritex presented a letter dated May 1, 2012, whereby Veritex notified Kidz that it had purchased the Property at a foreclosure sale, that future rental payments under the Lease should be made to Veritex, and that Veritex's acceptance of payments from Kidz should not be construed as a ratification of the Lease. Veritex also presented a letter dated July 19, 2012, whereby Veritex notified Kidz that it had not yet made a decision on ratification or termination of the Lease, and that certain issues would have to be resolved and agreed to in order for Veritex to make that decision. In response, Kidz presented as summary judgment evidence a June 4, 2012 letter, whereby Veritex notified Kidz that Veritex was willing to ratify the Lease if Kidz agreed to specified terms and conditions, including a partial rent payment for the month of April. In addition, Kidz presented a declaration from Johnson in which he testified that on or about June 27, 2012, Kidz paid Veritex the partial rent payment specified in the letter of June 4, 2012, Johnson signed the June 4, 2012 letter on behalf of Kidz accepting Veritex's offer to ratify the Lease and agreeing to the specified terms and conditions as specified by Veritex, and, further, that he caused the acceptance letter to be delivered to Veritex. Kidz also presented an excerpt from the deposition of Veritex's Senior Vice President, whereby he acknowledged that Veritex had ratified the Lease. Thus, Kidz's summary judgment evidence controverted Veritex's ratification defense, precluding the defense from serving as a basis for a summary judgment. Accordingly, we sustain Kidz's first issue as to Veritex's ratification defense.

B. Indemnity Defense

Veritex also alleged that, if it ratified the Lease, the Lease's indemnity provision relieves it of liability to Kidz. It provides:

Landlord shall not be liable to Tenant or to Tenant's employees, agents, invitees or visitors, or to any other person for injury to persons or damage to property on about the Premises or any adjacent area owned by landlord caused by the negligence or misconduct of Tenant, Tenant's employees, subtenants, agents, licensees or concessionaires or any other person entering the Premises under express or implied invitation of Tenant, or arising out of the use of the Premises by Tenant and the conduct of Tenant's business, or arising out of any breach or default by Tenant in the performance of Tenant's obligations under this Lease, and Tenant hereby agrees to indemnify and hold Landlord harmless from any loss, expense or claims arising out of such damage or injury.

In its summary judgment motion, Veritex argues the indemnity provision applies in this case because Kidz's damages were caused by the acts of an employee of Kidz. As to the identity of the person who damaged the Property, Veritex presented the affidavit of Veritex's Senior Vice President in which he stated Johnson told him he "suspected" that an employee or former employee of Kidz entered the premises and caused extensive damage to the Property. Veritex also included the incident report from the Plano Police Department in which the reporting officer indicated that he had asked Johnson if Kidz had recently terminated any employees and he responded "yes." A former employee was listed as a suspect in the police report. As relevant to this case, the indemnity provision would only be triggered if the misconduct of a Kidz's employee caused damage to property by entering the property with the express or implied consent of Kidz. At best the evidence presented established that a former employee, not a current employee, of Kidz was suspected of having damaged the Property in a criminal act, and clearly not with the express or implied permission of Kidz. Moreover, Veritex's reliance on the indemnity provision cannot support summary judgment because it precludes liability for loss of property "on or about the premises." It does not preclude liability for damage to the Property itself. For summary judgment purposes, the indemnity language does not unambiguously foreclose claims for damages such as those at issue here. We sustain Kidz first issue as to Veritex's indemnity defense.

C. Exemptions from Liability Defense

Veritex additionally alleged that, if it ratified the Lease, the Lease's Exemptions from Liability provision relieves it of liability to Kidz. That provision provides:

Landlord shall not be liable for any damage or injury to the persons, business (or any loss of income), goods, inventory, furnishings, fixtures, equipment, merchandise or other property of Tenant, Tenant's employees, invitees, customers or any other person in or about the Premises, whether the damage or injury is caused by or results from: (a) fire, steam, electricity, water, gas or wind; (b) the breakage, leakage obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing, air-conditioning, or lighting fixtures or any other cause; (c) conditions arising on or about the Premises or upon other portions of any building of which the Premises is a part, or from other sources or places, or (d) any act or omission of any other tenant of any building on the Property. Landlord shall not be liable for any damage or injury even though the cause of or the means of repairing the damage or injury are not accessible to Tenant. The provisions of this Section 6.08 will not, however, exempt Landlord from liability for Landlord's gross negligence or willful misconduct.

In its summary judgment motion, Veritex argued this provision bars Kidz from asserting a damage claim against Veritex because there is no evidence that Veritex was grossly negligent or engaged in willful misconduct. However, Veritex abandoned its earlier no-evidence motion for summary judgment and thereafter did not attempt to revive it or to challenge the specific elements of Kidz's gross negligence and willful misconduct claims that Veritex now contends lack supporting evidence. Thus, if this provision applies in this case—an issue we do not address here—it cannot serve as a basis upon which Veritex could have obtained summary judgment. See Roehrs v. FSI Holdings, Inc., 246 S.W.3d 796, 805 (Tex. App.-Dallas 2008, pet. denied). Consequently, we sustain Kidz's first issue as to Veritex's exemptions-from-liability defense.

D. Constructive Eviction

A constructive eviction occurs when the tenant leaves the leased premises due to conduct by the landlord which materially interferes with the tenant's beneficial use of the premises. Fidelity Mut. Life Ins. Co. v. Robert P. Kaminsky, M.D., P.A., 768 S.W.2d 818, 819 (Tex. App.-Houston [14th Dist.] 1989, no writ). The elements of a constructive eviction claim are: (1) an intention on the part of the landlord that the tenant shall no longer enjoy the premises, which intention may be inferred from the circumstances; (2) a material act by the landlord or those acting for him or with his permission that substantially interferes with the use and enjoyment of the premises for the purpose for which they are let; (3) permanent deprivation of the tenant's use and enjoyment of the premises; and (4) tenant's abandonment of the premises within a reasonable time after the commission of the act. Metroplex Glass Center, Inc. v. Vantage Properties, Inc., 646 S.W.2d 263, 265 (Tex. App.-Dallas 1983, writ ref'd n.r.e.).

Veritex urges that it negated the second element of Kidz's constructive eviction claim because the Property may have been rendered uninhabitable by a former employee, and not through any fault of Veritex, and Kidz refused to cooperate in getting the repairs done.2 In contrast, Kidz claims that Veritex's failure to repair the Property following the burglary and vandalism of same constitutes constructive eviction. As noted, there is no proof to support summary judgment, and certainly no conclusive proof to support summary judgment, that any identifiable person, much less a current or former Kidz employee, committed the underlying offense. Under the circumstances, the question of who is ultimately responsible for the state of disrepair is an issue to be decided by the trier of fact, conditioned upon a finding Veritex ratified the Lease. See Anderson v. Jackson, No. 06-3298, 2007 WL 458232, at *10 (E.D. La. Feb. 6, 2007). Moreover, if Veritex ratified the Lease and was thus obligated to repair the Property and its failure to do so rendered the Property untenantable, that failure will support a constructive eviction claim. See Ingram v. Fred, 210 S.W. 298, 300 (Tex. Civ. App.-Fort Worth 1918, writ ref'd). Consequently, fact issues exist concerning Veritex's defense of Kidz's constructive eviction claim precluding summary judgment on the claim. Accordingly, we affirm Kidz's first issue as to Veritex's defense to Kidz's constructive eviction claim.

E. Outstanding Rent Defense to Property Code Claims

In defense of Kidz's claims under the property code concerning its security deposit, Veritex argues it was not obliged to comply with the provisions of the property code because Kidz owed rent when it surrendered the premises and there is no controversy on the amount of rent owed. In his affidavit, Veritex's Senior Vice President states, without documenting the basis for his opinion, that Kidz was short on its September 2013 rent payment by $2,400. Meanwhile, Johnson countered this statement by declaring Kidz paid all rent through the date of termination of the Lease and no additional outstanding rent was due. On this state of the record, a fact issue exists as to whether Veritex was required to comply with various provisions of the property code relative to the security deposit. We sustain Kidz's first issue as to Veritex's defense to Kidz's property-code-violation claims.

F. Negligent Misrepresentation and Fraud Claims

Kidz contends that Veritex's representations concerning the completion date for the repairs, whether made fraudulently or negligently, caused it to forgo terminating the Lease, for a time, and to continue to pay rent and abide by the obligations set forth in the Lease. The summary judgment evidence may well support the conclusion that Veritex misinformed Kidz about how long the contractors would take to effect the repairs necessary to permit Kidz to reoccupy. The parties do not disagree on this. Instead, Veritex urges that the representations amounted to a statement of opinion, for which it urges no tort claim would sound, and that any misrepresentation would be dealt with in formulating a contract remedy. We agree with Veritex's second argument and limit our analysis to it.

The damages sought are entirely related to the contract Kidz argues Veritex ratified. When the injury is only the economic loss to the subject of a contract itself the action sounds in contract alone. Sw. Bell Tel. Co. v. DeLanney, 809 S.W.2d 493, 494-95 (Tex. 1991). Veritex's duty to repair the Property (and any communication relating to the timing of repairs) arose solely from the contract.3 Kidz's damages of rent paid were only for economic loss caused by Veritex's failure to perform as required by contract.

Consequently, Veritex was entitled to summary judgment on Kidz's negligent misrepresentation, common-law fraud, and fraudulent inducement claims. Accordingly, we overrule Kidz's first issue as to its negligent misrepresentation, common-law fraud, and fraudulent inducement claims.

II. Veritex's Counterclaims

Kidz urges because the trial court did not award Veritex damages and attorney's fees, it appears Veritex's counterclaims were not grounds for summary judgment. Kidz states, because it is required to address any potential ground, it is compelled to argue the trial court erred in granting Veritex summary judgment on its counterclaims. When a movant moves for summary judgment on its own claims, it must prove it is entitled to summary judgment by establishing each element of its claim as a matter of law. MMP, Ltd. v. Jones, 710 S.W.2d 59, 60 (Tex. 1986). If the movant does not conclusively establish all the elements necessary to its cause of action, summary judgment is improper. See, e.g., Wesson v. Jefferson S&L Ass'n, 641 S.W.2d 903, 906 (Tex. 1982).

As we previously stated, it appears from the trial court's order granting summary judgment that the trial court did not grant Veritex its alternative, conditional request for relief on its counterclaims as no damages or attorney's fees were awarded. Accordingly, Kidz's second issue is moot.

CONCLUSION

We reverse, in part, the trial court's judgment dismissing Kidz's breach of contract, constructive eviction, violations of the property code, gross negligence, and willful misconduct claims, and remand those claims for further proceedings. We remand Veritex's counterclaims for further proceedings consistent with this opinion. We affirm, in part, the trial court's judgment dismissing Kidz's common-law fraud, fraudulent inducement, and negligent misrepresentation claims.

JUDGMENT

In accordance with this Court's opinion of this date, the judgment of the trial court is AFFIRMED in part and REVERSED in part. We REVERSE that portion of the trial court's judgment dismissing Johnson Kidz, Inc.'s breach of contract, constructive eviction, violations of the property code, gross negligence, and willful misconduct claims, and we REMAND for further proceedings on those claims. We REMAND Veritex's counterclaims for further proceedings. In all other respects, the trial court's judgment is AFFIRMED.

It is ORDERED that each party bear its own costs of this appeal.

FootNotes


1. This language demonstrates the trial court's intention that its order be final. See Lehmann v. Har-Con Corp., 39 S.W.3d 191, 206 (Tex. 2001). Because the order disposed of Kidz's breach of contract claim, the condition precedent to Veritex's request for relief, that being the existence of an agreement by ratification, did not exist, and the order effectively disposed of Veritex's counterclaim by implication. See Walker v. Sharpe, 807 S.W.2d 442, 446 (Tex. App.-Corpus Christi 1991, no writ).
2. While Veritex argues Kidz refused to cooperate in getting the repairs done, there is no summary judgment evidence to support this argument.
3. Under the contract, Veritex was obligated to repair and rebuild the Property if it could reasonably be completed within 120 days of notice of the occurrence of the damage.

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